9/14/2010 @ 11:00AM

Best Buy Rocks, Retail Sales Climb

Best Buy
‘s second-quarter earnings blew past expectations Tuesday thanks to improved margins, and it was a good day for retail in general as the Commerce Department reported its monthly sales tally showed a modest advance in August.

Best Buy
said earnings rose 60.8% to $254 million from $158 million. On a per-share basis, earnings were up 62% to 60 cents, from 37 cents a year ago and well ahead of the 44 cents Wall Street expected. Sales increased only 2.7%, to $11.3 billion from $11 billion.

The jump in earnings was due to a significant expansion in operating margin, despite constrained consumer spending, said
Best Buy
Chief Executive
Brian
Dunn
Brian Dunn
. (See “Here Is How Best Buy Gains 33%.”)

“Were still in the early stages of our Connected World strategy, but this quarters results give me continued confidence that were making progress in driving value through growth in connections for our customers, vendors and shareholders,” said Dunn. (See “3D Isn’t HD, And Won’t Boost Best Buy Stock.”)

Shares of Best Buy rose 6.3%, or $2.17, to $36.82, while peers such as
RadioShack
and
GameStop
ticked up 0.9% and 0.7%, respectively.

Best Buy’s release was followed by the August retail sales report from the U.S. Commerce Department, which showed an increase of 0.4%, slightly ahead of the 0.3% analysts expected. Core sales, which excludes autos, gas and building materials, rose 0.6%, topping the 0.4% reading the Street anticipated.

“The relieving rebound in sales continues a theme in the data over the past few weeks: while growth is slow, recession risks are being dialed down,” says Michael Feroli, economist at JPMorgan Chase. Feroli adds that Tuesday’s report has real consumer spending in the third quarter tracking at a 2% annualized rate of increase. “That leaves the real GDP growth rate still looking like it will be close to 1.5% this quarter,” he says.

The retail sector, as measured by the
SPDR S&P Retail
exchange-traded fund, responded well to the news, rising 1.2%, or 46 cents, to $40.00. Names such as
Wal-Mart
,
Target
and
Costco Wholesale
also enjoyed modest gains.